June 30, 2022
U.S. Commerce Secretary Gina Raimondo said on Wednesday that global semiconductor exports to Russia have plummeted by 90 percent since the United States and its allies imposed export controls on Moscow over Moscow's conflict with Ukraine.
Speaking at the Commerce Ministry's annual meeting, Raimondo also said control of Russia's aerospace sector was hitting its ability to generate revenue and support military aviation.
"Russia could be forced to ground half to two-thirds of its commercial aircraft over the next four years in order to use them as spare parts," she added.
It comes a day after U.S. President Joe Biden's administration on Tuesday added five Chinese companies to a trade blacklist for allegedly supporting Russia's military and defense industrial base in a show of its power to impose sanctions on Moscow.
The United States has worked with allies to punish Russian President Vladimir Putin for the invasion, which Moscow called a "special operation," sanctioning a large number of Russian companies and oligarchs and placing others on a trade blacklist.
While U.S. officials have previously said China generally complies with the restrictions, Washington has vowed to closely monitor compliance and strictly enforce the rules.
Russia, Huawei-like restrictions
New rules implemented by the U.S. Department of Commerce (through its Bureau of Industry and Security (BIS)) require companies to obtain licenses from the U.S. government to export semiconductors, computers, telecommunications, information security equipment, lasers, sensors, navigation equipment, avionics, Ship equipment and aircraft parts are shipped to Russia. Additionally, the U.S. Department of Commerce added 49 Russian companies that are considered military end users (MEUs) to the Entity List.
All companies that use U.S. technology or components to make the aforementioned products must apply for an export license from the U.S. government, including Taiwan’s TSMC, which makes a variety of chips for Russian entities. These applications will be reviewed on the assumption of rejection.
In fact, TSMC has said it will comply with new export control rules that will keep Russia from chips that could potentially be used by its military, law enforcement and intelligence agencies. European chip designers and producers such as Bosch, NXP and X-Fab have also said they will comply with the new export regulations, according to Bloomberg. The companies supply chips to Russian automaker Avtovaz, which has reportedly been looking for alternative supplies.
"TSMC complies with all applicable laws and regulations and is fully committed to complying with the announced new export control rules," TSMC said in a statement published by Reuters. "The company also has a strict export control regime, including robust assessment and review procedures, to ensure compliance with export control restrictions."
China's Huawei was similarly restricted a few years ago, and needless to say, it was devastating for the company. Without chips made by TSMC or Intel, Huawei's share of the smartphone, server and PC markets would collapse.
TSMC makes chips for a number of companies that ship chips to Russia, including AMD, Intel and Nvidia. It is unclear whether the three companies will be able to obtain licenses to ship their products to Russia. It is also unknown whether companies such as Dell, HP or Lenovo that ship PCs and servers to Russian entities need to apply for a license.
At the same time, Russia accounts for less than 0.1% of global chip purchases, and builds very little locally (and the products it builds are often not competitive even in its own market), so economically, new export control rules will not harm it.
Another characteristic of these restrictions is that they do not cause any immediate problems for Russia and its government. The country likely has enough hardware reserves to keep its military, law enforcement and intelligence services running.
"Eventually they will hurt, but probably not for a few months," William Reinsch, a trade expert at the Center for Strategic and International Studies, said in a conversation with Reuters. "It's not a direct hit."
but there are exceptions
The new export restriction rules include categories that will be reviewed on a case-by-case basis, meaning a significant portion of export license applications will be approved. The categories reviewed on a case-by-case basis relate to humanitarian needs, flight safety, maritime security, government space cooperation, civil telecommunications infrastructure, government-to-government activities, and limited operations in support of Russian partner state companies.
Additionally, the U.S. will not restrict software updates to civilian end users, consumer encryption technology (if they are not targeted to Government End Users (GUE) and Russian SOEs), consumer communications equipment (again, not to GUE and Russian SOEs) , and even items used by the news media.
Essentially, that means Russians can still buy an Apple iPhone, keep using Apple's MacOS and Microsoft's Windows, not to mention medical equipment or even news production equipment.
While new strict export rules imposed by the U.S. government on the export of high-tech equipment and tools to Russia could import the country's military and intelligence capabilities, they will not do so immediately. While similar restrictions have badly affected Huawei, they won't cause significant harm to Russia, which produces hardly any advanced chip-based equipment locally. Still, if a company like automaker Avtovaz had to stop production because of a lack of chips, it would hit the local economy and would require federal intervention (or just take the country's largest automaker out of existence).